Congress Fails America

interest rates Analysis of the Bailout Congress Fails America
By Mike Colpitts

When the nation’s economic disaster hit the breaking point Congress took action.

The bailout approved by Congress gives the U.S. Treasury Department nearly complete discretion to purchase $700 billion of mortgage-backed securities and other troubled assets clogging the lending pipeline. But it fails to provide direction to handle the core problem of the nation’s economic trouble – the foreclosure epidemic.

At the root of the problem the financial crisis was triggered by falling home prices and foreclosures. “The bill does nothing to rescue millions of families facing foreclosure,” said U.S. Rep. Jesse Jackson, Jr. “The financial bailout package should not only purchase the mortgage-backed securities of Wall Street, but also secure the backs of those carrying mortgages on Main Street.”

Democratic lawmakers have called for provisions to allow homeowners at risk of foreclosure a way to restructure their mortgages to stay in their homes. The Treasury’s auction plan, which is part of the plan to right the economy, makes that difficult, if not impossible to produce since more than 90% of all subprime mortgages and adjustable rate mortgages are part of giant pools of securities that are sold to investors.

Under the present formula investors would have to approve reductions of mortgages in order to modify the loans. In order to really rescue the national economy, Congress and the Treasury will have to take on this problem, and work with mortgage companies, investors and banks to reduce mortgage amounts before more foreclosures occur.

To do any less will compound the problem and further damage the national economy. Housing Predictor forecast the foreclosure epidemic more than a year before the crisis began and the ensuing credit crisis. The bailout will act as a first step in the government’s attempt to save the U.S. economy from an economic depression. Actions to halt the growth of foreclosures would act to stabilize financial markets, benefit taxpayers in the long run and negotiate away some of the losses certain to be sustained by investors under the present formula.

Despite a massive revolt against a bailout, Congress approved the bailout, allowing the government to buy mortgages from troubled lenders. Servers hosting websites for the House of Representatives have been flooded with emails opposing the bailout.

“This is unprecedented,” said Jeff Ventura, communications director for the House’s chief administrator. Ventura also said that the website experienced a very high number of hits when the 9/11 commission released its final report on the 911 attacks, but it paled by comparison to this public outcry. Big business is being bailed out as usual without providing a plan for the little guy as the rate of foreclosures increase daily.

As President Bill Clinton says for every foreclosure the nation’s economy is damaged by an average of $225,000.

The financial crisis with all of its components is about people struggling in a worsening economy to pay their bills, keep their jobs and keep their homes all across the country. Government in a democracy is depended on by the people in times of crisis.

Homeowners on the brink of foreclosure aren’t assured of anything in this bailout plan other than a government effort to attempt to make their loans more affordable. Some 3-million homes have already been foreclosed and Housing Predictor forecasts an additional 3.4-million more will be foreclosed through 2011 unless additional major actions are taken by government leaders to halt the epidemic.

With millions of people in this precarious predicament it’s difficult to imagine how the government can help at all at this stage. Congress has adjourned for the session and returned to their homes without providing what the nation needs to solve the economic crisis. We can only hope that the Treasury will take steps to insure the public’s good.